cwt-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 1-13883

CALIFORNIA WATER SERVICE GROUP

(Exact name of registrant as specified in its charter)


Delaware						77-0448994
(State or other jurisdiction						(I.R.S. Employer Identification No.)
of incorporation or organization)

1720 North First Street

San Jose, California 95112

(Address of principal executive offices)

408-367-8200

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class:

Trading Symbol(s)

Name of Each Exchange on Which Registered:

Common Stock, $0.01 par value per share

CWT

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act) Yes ☐ No ☒

As of July 23, 2024, there were 58,825,117 shares of the registrant’s common stock outstanding.

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TABLE OF CONTENTS


		Page
PART I	Financial Information	3
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets (unaudited) as of June 30 , 2024 and December 31, 2023	3
	Condensed Consolidated Statements of Operations (unaudited) For the Three and Six Months Ended June 30 , 2024 and 2023	4
	Condensed Consolidated Statements of Cash Flows (unaudited) For the Six Months Ended June 30 , 2024 and 2023	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosure about Market Risk	30
Item 4.	Controls and Procedures	30

PART II	Other Information	30
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	31
Item 5.	Other Information	31
Item 6.	Exhibits	31
	Signatures	32

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PART I—FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

The condensed consolidated financial statements presented in this filing on Form 10-Q have been prepared by management and are unaudited.

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited (In thousands, except per share data)


	June 30, 2024		December 31, 2023
ASSETS
Utility plant:
Utility plant	$	5,141,580	$	4,925,483
Less accumulated depreciation and amortization	(1,199,399)		(1,152,228)
Net utility plant	3,942,181		3,773,255
Current assets:
Cash and cash equivalents	37,272		39,591
Restricted cash	45,403		45,375
Receivables:
Customers, net	71,125		59,349
Regulatory balancing accounts	5,495		64,240
Other, net	17,110		16,431
Accrued unbilled revenue, net	48,812		36,999
Materials and supplies	17,645		16,170
Taxes, prepaid expenses, and other assets	23,948		18,130
Total current assets	266,810		296,285
Other assets:
Regulatory assets	397,498		257,621
Goodwill	37,039		37,039
Other	227,714		231,333
Total other assets	662,251		525,993
TOTAL ASSETS	$	4,871,242	$	4,595,533
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock, $0.01 par value; 136,000 shares authorized, 58,825 and 57,724 outstanding on June 30, 2024 and December 31, 2023, respectively	$	588	$	577
Additional paid-in capital	929,376		876,583
Retained earnings	627,705		549,573
Accumulated other comprehensive loss	(13,068)		—
Noncontrolling interests	3,090		3,579
Total equity	1,547,691		1,430,312
Long-term debt, net	1,051,792		1,052,768
Total capitalization	2,599,483		2,483,080
Current liabilities:
Current maturities of long-term debt, net	1,183		672
Short-term borrowings	245,000		180,000
Accounts payable	143,533		157,305
Regulatory balancing accounts	12,754		21,540
Accrued interest	6,666		6,625
Accrued expenses and other liabilities	103,364		64,197
Total current liabilities	512,500		430,339
Deferred income taxes	363,597		352,762
Regulatory liabilities	742,842		683,717
Pension	83,266		82,920
Advances for construction	199,640		199,448
Contributions in aid of construction	289,820		286,491
Other	80,094		76,776
Commitments and contingencies (Note 9)
TOTAL CAPITALIZATION AND LIABILITIES	$	4,871,242	$	4,595,533

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

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CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Unaudited (In thousands, except per share data)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Operating revenue	$	244,299	$	194,044	$	515,048	$	325,144
Operating expenses:
Operations:
Water production costs	77,644		70,867		141,829		125,875
Administrative and general	32,042		34,975		67,638		70,961
Other operations	25,626		25,823		52,551		42,427
Maintenance	8,790		7,155		16,800		15,133
Depreciation and amortization	32,978		29,824		65,822		59,739
Income tax expense (benefit)	8,689		329		24,227		(5,315)
Property and other taxes	10,364		9,122		20,121		17,899
Total operating expenses	196,133		178,095		388,988		326,719
Net operating income (loss)	48,166		15,949		126,060		(1,575)
Other income and expenses:
Non-regulated revenue	5,513		4,485		10,611		9,108
Non-regulated expenses	(4,125)		(2,957)		(6,079)		(5,232)
Other components of net periodic benefit credit	4,338		4,756		7,611		9,977
Allowance for equity funds used during construction	1,819		1,355		3,561		2,759
Income tax expense on other income and expenses	(1,306)		(1,445)		(2,627)		(3,239)
Net other income	6,239		6,194		13,077		13,373
Interest expense:
Interest expense	14,840		13,491		30,640		26,309
Allowance for borrowed funds used during construction	(812)		(795)		(1,570)		(1,624)
Net interest expense	14,028		12,696		29,070		24,685
Net income (loss)	40,377		9,447		110,067		(12,887)
Net loss attributable to noncontrolling interests	(174)		(109)		(401)		(232)
Net income (loss) attributable to California Water Service Group	$	40,551	$	9,556	$	110,468	$	(12,655)
Earnings (loss) per share:
Basic	$	0.70	$	0.17	$	1.90	$	(0.23)
Diluted	$	0.70	$	0.17	$	1.90	$	(0.23)
Weighted average shares outstanding:
Basic	58,292		56,692		58,013		56,182
Diluted	58,325		56,730		58,046		56,182

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

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CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited (In thousands)


	Six Months Ended June 30,
	2024		2023
Operating activities:
Net income (loss)	$	110,067	$	(12,887)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	66,929		60,744
Change in value of life insurance contracts	(1,811)		(2,620)
Allowance for equity funds used during construction	(3,561)		(2,759)
Changes in operating assets and liabilities:
Receivables and accrued unbilled revenue	(16,859)		(2,187)
Water Arrearages Payment Program cash received	83,039		—

Accounts payable	(10,545)		(836)
Other current assets	(6,680)		(1,557)
Other current liabilities	7,314		(6,828)
Other changes in noncurrent assets and liabilities	(106,954)		6,451
Net cash provided by operating activities	120,939		37,521
Investing activities:
Utility plant expenditures	(214,414)		(177,189)
Life insurance proceeds	1,426		—
Purchase of life insurance contracts	(1,426)		—
Proceeds from sale of property	48		—
Asset acquisitions	—		(102)
Net cash used in investing activities	(214,366)		(177,291)
Financing activities:
Short-term borrowings, net of debt issuance costs of $0 for 2024 and $1,552 for 2023	295,000		148,448
Repayment of short-term borrowings	(230,000)		(90,000)
Repayment of long-term debt	(416)		(1,333)
Advances and contributions in aid of construction	10,936		9,129
Refunds of advances for construction	(4,865)		(4,791)
Repurchase of common stock	(1,235)		(1,650)
Issuance of common stock	53,381		113,921
Dividends paid	(32,336)		(29,027)
Distribution to noncontrolling interest	(489)		(288)
Others	1,160		—
Net cash provided by financing activities	91,136		144,409
Change in cash, cash equivalents, and restricted cash	(2,291)		4,639
Cash, cash equivalents, and restricted cash at beginning of period	84,966		85,025
Cash, cash equivalents, and restricted cash at end of period	$	82,675	$	89,664
Supplemental information:
Cash paid for interest (net of amounts capitalized)	$	28,178	$	23,677
Supplemental disclosure of non-cash activities:
Accrued payables for investments in utility plant	$	51,824	$	49,452
Utility plant contribution by developers	$	14,159	$	15,312

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

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CALIFORNIA WATER SERVICE GROUP

Notes to Unaudited Condensed Consolidated Financial Statements

June 30, 2024

Dollar amounts in thousands, unless otherwise stated

Note 1. Organization and Operations and Basis of Presentation

California Water Service Group (Company) is a holding company that provides water utility and other related services in California, Washington, New Mexico, Hawaii, and Texas through its wholly-owned and non-wholly owned subsidiaries. California Water Service Company (Cal Water), Washington Water Service Company (Washington Water), New Mexico Water Service Company (New Mexico Water), and Hawaii Water Service Company, Inc. (Hawaii Water) provide regulated utility services under the rules and regulations of their respective state’s regulatory commissions (jointly referred to as the Commissions). CWS Utility Services and HWS Utility Services LLC provide non-regulated water utility and utility-related services. TWSC, Inc. (Texas Water) holds regulated and contracted wastewater utilities. Regulated wastewater utilities held by Texas Water’s investment in joint venture with BVRT Utility Holding Company (BVRT) provide services under the rules and regulation of the Texas Public Utilities Commission.

The Company operates in one reportable segment, providing water and water-related utility services.

Basis of Presentation

The unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (SEC) and therefore do not contain all of the information and footnotes required by GAAP and the SEC for annual financial statements. Interim financial information includes the Company’s accounts and those of its wholly and non-wholly owned subsidiaries. The non-wholly owned subsidiary was consolidated using the voting interest model as the Company owns a majority of the non-wholly owned subsidiary’s voting interests. The interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the SEC on February 29, 2024.

The preparation of the Company’s unaudited condensed consolidated interim financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenues and expenses for the periods presented. These include, but are not limited to, estimates and assumptions used in determining the Company’s regulatory asset and liability balances based upon probability assessments of regulatory recovery, utility plant useful lives, revenues earned but not yet billed, asset retirement obligations, allowance for credit losses, pension and other employee benefit plan liabilities, and income tax-related assets and liabilities. Actual results could materially differ from these estimates.

In the opinion of management, the accompanying unaudited condensed consolidated interim financial statements reflect all adjustments, consisting of normal recurring transactions that are necessary to provide a fair presentation of the results for the periods covered.

Due to the seasonal nature of the water business, the results for interim periods are not indicative of the results for a 12-month period. Revenue and income are generally higher in the warm, dry summer months when water usage and sales are greater. Revenue and income are generally lower in the winter months when cooler temperatures and rainfall curtail water usage and sales.

Noncontrolling Interests

Noncontrolling interests in the Company’s unaudited condensed consolidated financial statements represents the 6.2% interest not owned by Texas Water in a consolidated subsidiary. Texas Water obtained control over the subsidiary on May 1, 2021. Since the Company controls this subsidiary, its financial statements are consolidated with those of the Company, and the noncontrolling owner’s 6.2% share of the subsidiary’s net assets and results of operations is deducted and reported as noncontrolling interests on the unaudited Condensed Consolidated Balance Sheet and as net loss attributable to noncontrolling interests in the unaudited Condensed Consolidated Statement of Operations. The Company reports noncontrolling interests in consolidated entities as a component of equity separate from the Company’s equity. The Company’s net income (loss) attributable to California Water Service Group excludes the net loss attributable to the noncontrolling interests.

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Note 2. Summary of Significant Accounting Policies

Operating Revenue

The following table disaggregates the Company’s operating revenue by source for the three and six months ended June 30, 2024 and 2023:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Revenue from contracts with customers	$	226,665	$	194,206	$	381,566	$	339,431
Regulatory balancing account revenue	17,634		(162)		133,482		(14,287)
Total operating revenue	$	244,299	$	194,044	$	515,048	$	325,144

Revenue from contracts with customers

The Company principally generates operating revenue from contracts with customers by providing regulated water and wastewater services at tariff-rates authorized by the Commissions in the states in which they operate and non-regulated water and wastewater services at rates authorized by contracts with government agencies. Revenue from contracts with customers reflects amounts billed for the volume of consumption at authorized per unit rates, for a service charge, and for other authorized charges.

The Company satisfies its performance obligation to provide water and wastewater services over time as services are rendered. The Company applies the invoice practical expedient and recognizes revenue from contracts with customers in the amount for which the Company has a right to invoice. The Company has a right to invoice for the volume of consumption, for the service charge, and for other authorized charges.

The measurement of sales to customers is generally based on the reading of their meters, which occurs on a systematic basis throughout the month. At the end of each month, the Company estimates consumption since the date of the last meter reading and the corresponding accrued unbilled revenue is recognized. The estimate is based upon the number of unbilled days that month and the average daily customer billing rate from the previous month (which fluctuates based upon customer usage).

Contract terms are generally short-term and at will by customers and, as a result, no separate financing component is recognized for the Company’s collections from customers, which generally require payment within 30 days of billing. The Company applies judgment, based principally on historical payment experience, in estimating its customers’ ability to pay.

Certain customers are not billed for volumetric consumption, but are instead billed a flat rate at the beginning of each monthly service period. The amount is advance billed and is initially deferred. Subsequently, it is recognized over the monthly service period, as the performance obligation is satisfied. The deferred revenue balance or contract liability, which is included in “accrued expenses and other liabilities” on the unaudited Condensed Consolidated Balance Sheets, is inconsequential.

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In the following table, revenue from contracts with customers is disaggregated by class of customers for the three and six months ended June 30, 2024 and 2023:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Residential	$	122,251	$	108,741	$	214,744	$	192,775
Business	41,906		37,846		76,455		69,820
Multiple residential	18,043		16,504		34,912		31,501
Industrial	7,119		5,874		13,759		11,508
Public authorities	10,918		8,991		17,880		15,416
Other (a)	26,428		16,250		23,816		18,411
Total revenue from contracts with customers	$	226,665	$	194,206	$	381,566	$	339,431

(a) Other includes accrued unbilled revenue

Regulatory balancing account revenue

Regulatory balancing account revenue is revenue related to revenue mechanisms authorized in California by the California Public Utilities Commission (CPUC). For certain revenue mechanisms, the Company recognizes revenue when it is objectively determinable, probable of recovery and expected to be collected within 24 months following the end of the accounting period. To the extent that revenue is estimated to be collectible beyond 24 months, recognition is deferred. These mechanisms include the Monterey-Style Water Revenue Adjustment Mechanism (MWRAM) which was approved in Cal Water’s 2021 General Rate Case (GRC) filing (2021 GRC) in March of 2024. The MWRAM tracks the difference between the revenue received for actual metered sales through the tiered volumetric rate and the revenue that would have been received with the same actual metered sales if a uniform rate had been in effect. The MWRAM is effective retroactive to January 1, 2023. During the three and six months ended June 30, 2024, the Company recorded $8.2 million and $39.3 million, respectively, of MWRAM revenue.

These mechanisms also include the Water Revenue Adjustment Mechanism (WRAM) which decoupled revenue from the volume of sales and allowed the Company to recognize the adopted level of volumetric revenues. The variance between adopted volumetric revenues and actual billed volumetric revenues for metered accounts was recorded as regulatory balancing account revenue. The WRAM concluded on December 31, 2022; however, the Company has a net WRAM receivable balance for which the Company continues to defer revenue recognition for amounts estimated to be collected beyond 24 months following the end of the accounting period. The Company applied a portion of the proceeds from the California Extended Water and Wastewater Arrearages Payment Program (Extended Program) to eligible customer WRAM balances as discussed below under Allowance for Credit Losses.

Regulatory balancing accounts also include revenue that is recognized for balancing and memorandum accounts when it is probable that future recovery of previously incurred costs or future refunds that are to be credited to customers will occur through the ratemaking process. As a result of the delay in the approval of the 2021 GRC, the CPUC authorized Cal Water to track the effect of the delay on customer billings in an Interim Rates Memorandum Account (IRMA) effective January 1, 2023. Variances between actual customer billings and those that would have been billed assuming the 2021 GRC had been implemented on January 1, 2023 were recorded as regulatory balancing account revenue. The 2021 GRC was approved in March of 2024 and final authorized rates were implemented effective May 31, 2024; as a result, Cal Water calculated and recorded this difference for all of 2023 and the first five months of 2024. Cal Water determined that the IRMA met regulatory asset recognition criteria under accounting standards for regulated utilities. During the three and six months ended June 30, 2024, the Company recorded $7.9 million and $88.6 million, respectively, of revenue for the IRMA.

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Non-Regulated Revenue

The following table disaggregates the Company’s non-regulated revenue by source for the three and six months ended June 30, 2024 and 2023:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Operating and maintenance revenue	$	3,188	$	3,075	$	6,436	$	6,310
Other non-regulated revenue	1,720		800		2,949		1,582
Non-regulated revenue from contracts with customers	4,908		3,875		9,385		7,892
Lease revenue	605		610		1,226		1,216
Total non-regulated revenue	$	5,513	$	4,485	$	10,611	$	9,108

Operating and maintenance services are provided for non-regulated water and wastewater systems owned by private companies and municipalities. The Company negotiates formal agreements with the customers under which the Company provides operating, maintenance and customer billing services related to the customers’ water system. The formal agreements outline the fee schedule for the services provided. The agreements typically call for a fee-per-service or a flat-rate amount per month. The Company satisfies its performance obligation of providing operating and maintenance services over time as services are rendered; as a result, the Company employs the invoice practical expedient and recognizes revenue in the amount that it has the right to invoice. Contract terms are generally short-term and, as a result, no separate financing component is recognized for its collections from customers, which generally require payment within 30 days of billing.

Other non-regulated revenue primarily relates to services for the design and installation of water mains and other water infrastructure for customers outside the regulated service areas and insurance program administration.

Lease revenue is not considered revenue from contracts with customers and is recognized following operating lease standards. The Company is the lessor in operating lease agreements with telecommunications companies under which cellular phone antennas are placed on the Company’s property.

Allowance for Credit Losses

The Company measures expected credit losses for Customer Receivables, Other Receivables, and Accrued Unbilled Revenue on an aggregated level. These receivables are generally trade receivables due in one year or less or expected to be billed and collected in one year or less. The expected credit losses for Other Receivables and Accrued Unbilled Revenue are inconsequential. Customer receivables include receivables for water and wastewater services provided to residential customers, business, industrial, public authorities, and other customers. The expected credit losses for business, industrial, public authorities, and other customers are inconsequential. The overall risks related to the Company’s receivables are low as water and wastewater services are seen as essential services. The estimate for the allowance for credit losses is based on a historical loss ratio, in conjunction with a qualitative assessment of elements that impact the collectability of receivables to determine if the allowance for credit losses should be further adjusted in accordance with the accounting guidance for credit losses. Management contemplates available current information such as changes in economic factors, regulatory matters, industry trends, payment options and programs available to customers, and the methods that the Company is able to use to ensure payment.

The Company reviews its allowance for credit losses utilizing a quantitative assessment, which includes a trend analysis of customer billings and collections, agings by customer class, and unemployment rates. The Company also utilizes a qualitative assessment, which considers the future collectability of customer outstanding balances, management’s estimate of the cash recovery, and a general assessment of the economic conditions in the locations the Company serves. Based on these assessments, the Company adjusts its allowance for credit losses. The Company has also taken into account $82.0 million of funds that the Company received in April of 2024 from the Extended Program for eligible customers in California of which $57.5 million was applied to eligible past due customer balances during the second quarter of 2024. The remaining balance is expected to be returned to the State Water Resources Control Board (Water Board) in the fourth quarter of 2024 and is included in “accrued expenses and other liabilities” on the unaudited Condensed Consolidated Balance Sheet. The Extended Program was created by the California Legislature, and is administered by the Water Board

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and provides relief to community water and wastewater systems for unpaid bills – arrearages – related to the COVID-19 pandemic. Based on the above assessments, the Company determines its allowance for credit losses.

The following table presents the activity in the allowance for credit losses for the six months ended June 30, 2024 and twelve months ended December 31, 2023:


	June 30, 2024		December 31, 2023
Beginning balance	$	2,854	$	5,629
Provision for credit loss expense	1,611		2,480
Write-offs	(1,554)		(5,795)
Recoveries	238		540
Total ending allowance balance	$	3,149	$	2,854

Cash, Cash Equivalents, and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash within the unaudited Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown on the unaudited Condensed Consolidated Statements of Cash Flows (see Note 9 for further details on restricted cash):


	June 30, 2024		December 31, 2023
Cash and cash equivalents	$	37,272	$	39,591
Restricted cash	45,403		45,375
Total cash, cash equivalents, and restricted cash shown in the statements of cash flows	$	82,675	$	84,966

Earnings (Loss) per Share

Basic earnings (loss) per share of common stock is computed by dividing the net income (loss) attributable to California Water Service Group by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts were exercised or converted into common stock. Restricted Stock Awards (RSAs) are included in the common shares outstanding because the shares have all the same voting and dividend rights as issued and unrestricted common stock.

New Accounting Standards and SEC Rules

In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for the Company’s annual periods beginning January 1, 2024, and for interim periods beginning January 1, 2025, with early adoption permitted. The guidance requires retrospective presentation of all prior periods presented in the financial statements. The Company is currently evaluating the potential effect that the updated standard will have on its financial statement disclosures and does not expect to early adopt.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for the Company's annual periods beginning January 1, 2025, with early adoption permitted. The guidance is applied prospectively with the option of retrospective application for each period presented. The Company is currently evaluating the potential effect that the updated standard will have on its financial statement disclosures and does not expect to early adopt.

In March 2024, the SEC issued SEC Release No. 33-11275, The Enhancement and Standardization of Climate-Related Disclosures for Investors. The final rules enhance disclosures related to the risks and impacts of climate-related matters. In April 2024, the SEC voluntarily stayed the new rules as a result of pending legal challenges. The new rules, if they become effective as adopted, would require various disclosures related to climate-related risks if those risks could have a material impact on the Company’s business, results of operations, or financial condition. Required disclosures would also include information about the Company’s greenhouse gas emissions, if material. In addition, the rules would require disclosure of certain climate-related financial metrics in the Company’s financial statements. The final rules, if they become effective as adopted, would be effective no earlier than the Company’s Annual Report on Form 10-K for the year ending December 31, 2025. The Company is currently evaluating the potential effect that the rules will have on its financial statement disclosures.

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Note 3. Stock-Based Compensation

The Company’s 2024 Equity Incentive Plan (2024 Plan) was adopted by the Board of Directors and approved by stockholders on May 29, 2024. The Company reserved 1,600,000 shares of common stock for 2024 Plan awards.

In June of 2024, the Company granted Restricted Stock Awards (RSAs) to Officers and members of the Board of Directors (Directors). Generally, an RSA share represents the right to receive a share of the Company’s common stock and is valued based on the fair market value of the Company’s common stock at the date of grant. The 2024 RSAs granted to Officers vest over 33 months with the first 9 months cliff vesting. RSA granted to the Directors in 2024 vest at the end of 9 months. The 2024 RSAs are recognized as expense evenly over 33 months for the shares granted to Officers and 9 months for the shares granted to the Directors. As of June 30, 2024, there was approximately $3.8 million of total unrecognized compensation cost related to RSAs. The cost is expected to be recognized over a weighted average period of 1.7 years.

A summary of the status of the outstanding RSAs as of June 30, 2024 is presented below:


	Number of RSA Shares	Weighted-Average Grant-Date Fair Value
RSAs at January 1, 2024	53,303	$	55.48
Granted	58,556	49.62
Vested	(32,869)	55.32

RSAs at June 30, 2024	78,990	$	51.20

In June of 2024, the Company granted performance-based Restricted Stock Units (RSUs) to Officers. Generally, an RSU represents the right to receive a share of the Company’s common stock. Each award reflects a target number of shares of common stock that may be issued to the award recipient. The 2024 awards may be earned upon the completion of a 33 month performance period. Whether RSUs are earned at the end of the performance period will be determined based on the achievement of certain performance objectives set by the Organization and Compensation Committee of the Board of Directors in connection with the issuance of the RSUs. The performance objectives are based on the Company’s business plan covering the performance period. The performance objectives include achieving the budgeted return on equity, growth in stockholders’ equity, and application submission targets of grant funding. Depending on the results achieved during the 33 month performance period, the actual number of shares that a grant recipient receives at the end of the performance period may range from 0% to 200% of the target shares granted, provided that the grantee is continuously employed by the Company through the vesting date. If prior to the vesting date employment is terminated by reason of death, disability or normal retirement, then a pro rata portion of this award will vest. The RSUs are recognized as expense ratably over the 33 month performance period using a fair market value of the Company’s common stock at the date of grant and an estimated number of RSUs earned during the performance period. As of June 30, 2024, there was approximately $4.9 million of total unrecognized compensation cost related to RSUs. The cost is expected to be recognized over a weighted average period of 2.0 years.

A summary of the status of outstanding RSUs as of June 30, 2024 is presented below:


	Number of RSU Shares	Weighted-Average Grant-Date Fair Value
RSUs at January 1, 2024	93,078	$	55.41
Granted	66,821	49.62
Performance criteria adjustment	13,735	53.96
Vested	(36,394)	53.96

RSUs at June 30, 2024	137,240	$	52.83

The Company has recorded compensation costs for the RSAs and RSUs which are included in administrative and general operating expenses in the amount of $0.4 million and $1.4 million for the three months ended June 30, 2024 and 2023, respectively. For the six months ended June 30, 2024 and 2023, the Company has recorded compensation costs for the RSAs and RSUs in the amount of $1.1 million and $1.5 million, respectively.

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Note 4. Equity

On April 29, 2022, the Company entered into an equity distribution agreement to sell shares of its common stock having an aggregate gross sales price of up to $350.0 million from time to time depending on market conditions through an at-the-market equity program over the next three years. The Company intends to use the net proceeds from these sales, after deducting commissions and offering expenses, for general corporate purposes, which may include working capital, construction and acquisition expenditures, investments and repurchases, and redemptions of securities. The Company sold 1,000,000 shares of common stock through its at-the-market equity program and raised proceeds of $52.0 million, net of $0.5 million in commissions paid under the equity distribution agreement, during the three and six months ended June 30, 2024.

During the three months ended June 30, 2023, the Company sold 1,699,849 shares of common stock through its at-the market equity program and raised proceeds of $94.5 million, net of $1.0 million in sales commissions. During the six months ended June 30, 2023, the Company sold 2,025,891 shares of common stock through its at-the-market equity program and raised proceeds of $112.7 million, net of $1.1 million in sales commissions.

The Company’s changes in total equity for the six months ended June 30, 2024 and 2023 were as follows:


	Six Months Ended June 30, 2024
	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interests		Total Equity

	Shares	Amount
	(In thousands)
Balance at January 1, 2024	57,724	$	577	$	876,583	$	549,573	$	—	$	3,579	$	1,430,312
Net income	—	—		—		69,917		—		(227)		69,690
Issuance of common stock	55	1		1,506		—		—		—		1,507
Repurchase of common stock	(25)	—		(1,142)		—		—		—		(1,142)
Dividends paid on common stock ($0.2800 per share)	—	—		—		(16,164)		—		—		(16,164)
Adjustment for unrecoverable pension benefit plan costs	—	—		—		—		(13,663)		—		(13,663)
Amounts reclassified to earnings (a)	—

SEC Form 10-Q filed by California Water Service Group